Working Capital Management

Transcription

1 Leitfaden für die nachhaltige Optimierung von Vorräten, Forderungen und Verbindlichkeitn Bearbeitet von Dr. Hendrik Vater, Elena Bail, Prof. Dr. Heinz-Jürgen Klepz, Internationaler Controller Verein 1. Auflage Taschenbuch. 86 S. Paperback ISBN Wirtschaft > Unternehmensfinanzen > Controlling, Wirtschaftsprüfung, Revision Zu Inhaltsverzeichnis schnell und portofrei erhältlich bei Die Online-Fachbuchhandlung beck-shop.de ist spezialisiert auf Fachbücher, insbesondere Recht, Steuern und Wirtschaft. Im Sortiment finden Sie alle Medien (Bücher, Zeitschriften, CDs, ebooks, etc.) aller Verlage. Ergänzt wird das Programm durch Services wie Neuerscheinungsdienst oder Zusammenstellungen von Büchern zu Sonderpreisen. Der Shop führt mehr als 8 Millionen Produkte.

2 3.2 Receivables management Order-to-Cash process Process objective Delayed settlement of receivables or even complete write-offs belongs still to the main reasons why companies get into financial difficulty. Accordingly, no matter what the sector, this area plays a very important role in working capital management to safeguard the liquidity of the company and reduce the risk of payment delays or bad-debt losses. The reasons for a delayed payment or a payment default vary considerably, ranging from complaints and warranty claims, to customer insolvency. As a result, receivables management provides numerous starting points for working capital management which go far beyond just the granting of payment terms that are as short as possible. Active receivables management aims to ensure that the customer is given not only a commercially sensible and market-based payment term, but also that 1. cooperation between the involved departments is strengthened and communication is promoted ahead of the actual conclusion of a contract, 2. the creditworthiness of the customer is constantly reviewed and 3. the aging of receivables and the receipt of payments are monitored. In a comprehensive approach to working capital management, receivables management in the context of the Order-to-Cash process offers interesting starting points for optimisation. These can provide a basis for improving cooperation between the different departments, and thereby enable efficiency improvements across the entire process. Achieve timely payment and prevent bad-debt losses Process description The Order-to-Cash process can be broken down into five subprocesses. Figure 13 shows the complete receivables management process, starting from sales, order entry and invoicing, via the effects of agreed terms and conditions, the complaint and collections process, through to the actual receipt of payment by a chronological indicative order. A description of the individual subprocesses and their timing in the overall process illustrates the interdependencies between the different components and steps. These interdependencies, in turn, need to be considered when developing and designing optimisation measures because they make it possible to address measures to the respective responsible parties. 43

3 Sales Making a proposal Evaluating customer risk Credit approval & limit setting Credit risk monitoring & portfolio management Master data Order entry Order processing & fulfilment Workflow design Contract management & invoicing Contract management & record retention Service level definition Unbilled services Invoice triggers Invoice issuance Invoice quality Profitability management Guidelines & process documentation Terms & conditions Payment terms / payment targets Deviations from standard payment terms & approval Special agreements, e.g., consignment warehousing Financing & securities Bonuses & rebates Strategic company positioning Hidden credit days Objective setting & reporting Collections Proactive customer contact (prior to due date) Dunning procedures & dunning levels Special measures for customers in arrears, e.g., payment plans Legal steps Resolution of reasons for complaints Handling reasons for complaints Processing credit notes & credit note management Internal & external communication Monetary transactions Payment methods Accounting for payment receipts Account reconciliation Unjustified deductions from invoice Creating awareness Figure 13: Order-to-Cash subprocess steps Source: Ernst & Young, 2013a. 44

4 Elements that support or explain the process, such as target agreements, reporting lines and methods, documentation, technical work equipment or roles and responsibilities, etc., should be developed in a user-friendly manner appropriate to the respective situation (see Figure 13) Optimisation possibilities The objective of receivables management is to optimise customer payments. This includes not only more rapid payments, but also the desire to receive payment for the receivable in full without any deductions. This requires a structured and comprehensive approach when designing and optimising the individual steps of receivables management. Once again, the subprocesses are interlinked with each other and there are special optimisation possibilities for each subprocess. In the sales subprocess an important measure is the analysis and assessment of customer risk and the associated potential for bad debt losses. This needs to be carried out by a function that is independent of Sales (e.g. Credit Management). Losses from bad debts are to be avoided by performing a comprehensive credit check. This applies both prior to initiating a business relationship with new customers as well as on an ongoing basis with regard to existing business partners. In practice, the ongoing update and consistent consideration of customer creditworthiness are a particularly challenging task for companies. An information flow across departments and / or access to information, as well as a transparent risk-assessment model when setting credit limits, provides a foundation for a common understanding between Sales and the Back Office regarding the customer strategy. This information can also help to channel Sales towards good customer groups. Furthermore, it often happens that Sales grants conditions on a case-by-case basis based on individual customer circumstances. But by taking a closer look, customers can often be categorised into similar groups or segments. Such a categorisation can help to harmonise service levels (e.g. customer visits vs. calls by phone), concessions regarding conditions (e.g. the length of permitted payment terms) and administrative processing (e.g. the strictness of dunning procedures to be used). Segmentation criteria must be developed based on company-specific business objectives; suitable examples include sales, potential and profitability. The contract management and invoicing subprocess governs the design of the contract, payment methods, conditions, clauses, securities and product features. Invoicing dates, payment terms and security against lack of payment (e.g., export letters of credit) or currency losses, as well Credit Management and Sales must cooperate transparently Identify customer segments 45

5 Official and hidden credit days agreed via terms and conditions An efficient collections process segmented by priorities, combined with precise reporting and interlocked with complaint management as the minimisation of transaction costs, are important areas for optimisation. Invoicing should take place as quickly and accurately as possible in order to avoid creating credit dates benefiting the customer, and to minimise the risk of customer complaints about invoicing errors. Finally, the payment term starts only from the date when the invoice is generated. The terms and conditions subprocess covers the basic contractual conditions of the business transaction. The primary objective here is to shorten the number of granted credit days, which can also be achieved by avoiding so-called hidden credit days, e.g., by working with a consignment agreement. In addition, clauses about the legal jurisdiction, dunning procedures and collection costs, as well as late-payment interest, should be included too. These clauses have a deterrent function for the customers and are intended to counteract the risk of missed due dates and thus the usage of unagreed supplier credit. Companies should also regularly compare the contractually agreed conditions with actual practice and then address and eliminate negative deviations. The collections subprocess is responsible for actually collecting the receivables. After the delivery takes place and the invoice is generated, receivables are administered and controlled by the accounts receivable accounting function. A database that is centrally managed and held up to date, enables companies to have full transparency on open receivables, their due dates or overdue status, and measures taken to address issues. Similarly, such a database helps to efficiently identify priorities, e.g., particularly high or long overdue receivables. In addition, ongoing KPIs such as DSO (at the country or customer level) help to assess the trends in outstanding receivables. An interface to the complaint processing function is also especially important because any delay caused there lessens the customer's willingness to pay and blocks the collection process. Every dunning letter should be formulated in a way that is firm but respectful. In practice, the dunning process is performed in stages with rising levels of urgency. A disciplined approach and short intervals between the steps are advisable. The use of resources (manual vs. automated) should be oriented towards the importance of the customer. This importance can be expressed, for example, in terms of defined customer segments or clusters. In the context of overall receivables management, one critical success factor is cooperation and close involvement of Sales because, first, this is where the direct contact with the customer is, and second, target conflicts regarding sales goals can arise here that should be taken into account. Clearly defined standard 46

6 processes, oriented to customer segments and combined with fixed schedules for actions and a regular exchange of information, form the foundation here. If there are not enough internal resources to perform the dunning process in-house, then the tasks can be outsourced to an external collection agency. If out-of-court measures are not successful, the customer can be taken to court. But in addition to the general risk associated with litigation, legal action also involves considerable fees. External process financiers (factoring, asset backed securities) can also provide liquidity earlier, albeit with corresponding deductions. But the use and cost-effectiveness of such models must be examined on a case-by-case basis for each company. In the monetary transaction subprocess the initial question is strategic in nature, namely which payment means and methods should be accepted. Payment methods that delay the receipt of funds due to processing reasons, e.g., checks, should be avoided whenever possible. In addition, incoming customer payments must be allocated as directly as possible to the corresponding customer account and receivables. This is necessary, first, to avoid irritating the customer by sending unwarranted dunning letters and second, to rapidly identify and address any unjustified invoice deductions by the customer for reclaim. Major examples of best practices for the Order-to-Cash process are illustrated in Figure 14. Timely payment allocation backs up collections 47

7 Process area / department Invoicing Risk management Payment terms Description of measure Objective To be considered Ensure invoices are issued as soon as possible after delivery Avoid invoicing errors and eliminate sources of mistakes Perform regular credit checks of both new and existing customers Rigorously apply defined and IT- supported credit limits and block deliveries when limits are exceeded Use security tools (e.g., credit insurance, retention of title, prepayments) when appropriate Harmonise and standardise payment terms within similar customer groups (products, size of turnover, regions, etc.) Prevent hidden credit days for the benefit of the customer Prevent situations that customers hold back payments due to incorrect invoices Create transparency about the structure of the existing customer base and identify target customers with good credit Serves as an early indication of changes in risk Make risk visible and thus manageable Automated process ensures efficient real-time review and inclusion of existing and new incoming receivables (orders) Reducing manual interventions ensures adherence to targets and standards Reduce bad debt losses Reduce complexity and potential sources of administrative errors Enable clear target setting and controlling / measurability of granted customer credits Minimise agreements regarding monthly invoices, consignments and self-billing procedures Eliminate technical obstacles such as interval-controlled data transmissions Ensure the quality of the data going into the invoice, e.g. prices Information sources (internal / external) and credit rating systems must be communicated in a timely and transparent manner appropriately adapted to the business model In the case of international organisations / groups, monitor also at an overall level Calculation model for credit limits must be dynamic to capture the most recent information Close coordination and communication with Sales is necessary Define exceptions and implement an escalation & authorisation process, e.g., for customers with unusual receivable trends such as seasonal business Not applicable in all countries and industries Check legal requirements and (real) enforceability In international organisations, adhere to the use of standard, system-based code tables Requires a systematic recording of segment allocations in the customer master data In international organisations / groups, also align at higher levels 48